Dave Ramsey’s Baby Step One - $1,000 Emergency Fund In The Bank (2024)

FAQs

What is the 1000 emergency fund Dave Ramsey? ›

How Much You Should Have in Your Emergency Savings. Here's a Dave Ramsey principle we agree with: If you make less than $20,000 per year, aim to have at least $500 in emergency savings. If you make more than $20,000, then aim for at least $1,000.

Setting $1,000 aside can help provide a buffer for many unexpected expenses. Once you save $1,000, that's when I would recommend you more aggressively tackle your debt.

While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.

Ideally, you'd put your emergency fund into a savings account with a high interest rate and easy access. Because an emergency can strike at any time, having quick access is crucial. So it shouldn't be tied up in a long-term investment fund.

Checking account

Keeping your emergency fund in the same account as the funds you use for everyday finances is a bad idea for two reasons: It's too accessible, and you aren't tapping into the interest-earning potential other accounts offer.

Fewer than half of Americans, 44%, say they can afford to pay a $1,000 emergency expense from their savings, according to Bankrate's survey of more than 1,000 respondents conducted in December. That is up from 43% in 2023, yet level when compared to 2022.

In addition to keeping funds in a bank account, you should also keep between $100 and $300 cash in your wallet and about $1,000 in a safe at home for unexpected expenses. Everything starts with your budget. If you don't budget correctly, you don't know how much you need to keep in your bank account.

Without emergency savings, you may be forced to tap credit cards or other high-interest loans. That could increase your debt load and undermine the financial security you're working hard to achieve. Experts recommend savings of three to six months of living expenses, depending on your personal situation.

How to get rid of $30,000 in debt? ›

Get in touch with a debt relief service

If you choose a debt management program, experts will typically try to negotiate your interest rates and payment terms with your lenders on your behalf. They'll also create a payment plan for you that fits your budget while getting you out of debt as quickly as possible.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Eventually, your goal is to have 3–6 months of expenses in a fully funded emergency fund and at least 15% of your gross pay going into retirement savings. (These are part of the 7 Baby Steps, aka the proven method to saving money, paying off debt, and building lasting wealth.) Let's look at some examples.

Bank or credit union account — If you have an account with a bank or credit union—generally considered one of the safest places to put your money—it might make sense to have a dedicated account where you can keep and maintain these funds.

- live on less than you make Saving account/money market account - The only place you should keep your emergency fund money is a saving account/money market account.

Use Low-Risk Accounts: Place your emergency fund in a savings account, or short-term certificate of deposit (CD).

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.